Spain has legal requirement for its residents to make an overseas assets declaration, notifying the tax authorities of worldwide assets that they own or control.
Failure to make an overseas assets declaration, or submission of an inaccurate one, can result in costly penalties. Unreported overseas assets that are later discovered by the authorities, may be treated as undeclared income on which tax should have been paid. The fines and penalties for such can amount to more than 150% of the undeclared asset value.
Overseas Assets Declaration – Law & Tax
The legislation, (LEY 7/2012, de 29 octubre, de prevención y lucha contra el fraude fiscal), was passed in Spain in 2012. Whilst it was aimed at deliberate high level tax evaders, the fact it allows penalties to be imposed simply for non-declaration of overseas assets, means that expats and other foreigners living in Spain, who are likely to have such assets, really need to understand the implications of this law, and make their declaration correctly, so as not to fall foul of this rather intrusive legislation.
The overseas assets declaration is an information gathering exercise, and not a tax return. Therefore someone making or considering doing an overseas assets declaration should be aware that they are not declaring assets so that they can be directly taxed. They should however be mindful that declaration of certain types of assets, may make the authorities aware of sources of income or capital gains for example, that could be deemed to be subject to tax in Spain. With this in mind, it is also important to understand Spanish taxation, and to make sure that assets are organised efficiently, considering tax in Spain, in order to avoid paying additional tax or amounts unnecessarily.
Making an Overseas Assets Declaration
An overseas assets declaration is made by completing a form known as ‘Modelo 720‘. The deadline for submitting the form is the 31st of March, and generally speaking the declaration only needs to be made once, as subsequent declarations are only necessary if assets have been acquired, or disposed of, or if existing declared assets have increased in value above a given amount.
The legal requirement to make an overseas assets declaration in Spain, and the potentially high penalties for not doing so, brought a massive change for both foreign and Spanish nationals resident in Spain. Some have even made the decision to leave the country as a result – these primarily those whom the law is aimed at – individuals for whom making the declaration would implicate them in tax avoidance or indeed evasion.
Whilst this law and reporting requirement might seem intrusive, it is in reality only a small move by the authorities, in their steps to counter the country’s rampant tax evasion. For British expats, in particular retirees, Spain can actually be better than the UK where tax is concerned, because of the more favourable tax treatment of some types of pension income. If you have concerns relating to the overseas assets declaration, as with anything relating to financial, tax or legal matters, we recommend that you consult a relevant and suitably qualified professional.